The UK financial sector, excluding banks, is experiencing a period of poor visibility with few clear...
The UK financial sector, excluding banks, is experiencing a period of poor visibility with few clear trends emerging.
The sector covers a number of quite distinct service providers, among others, insurance, asset gatherers, secondary lenders and brokers. The one theme that is consistent across these businesses is a concern about the health of the economy, with financial services companies experiencing a fall off in demand, says Richard Peirson, a non-banking financials analyst at Framlington.
Small businesses that operate in the venture capital market could be in for a tough time, he warns. Demand in this market has dipped and many are finding life a lot tougher than they were this time last year. Companies that lend to the consumer should be in a much stronger position, he believes.
Fund management is another area where the growth outlook in the short-term looks poor, although long-term Peirson remains optimistic. The depressed trading environment, he says, has hit fees and fund managers are currently finding it increasingly difficult to attract new business.
'There are a number of diverse areas that will do well in the current climate. Property is an area I think will see a lot of corporate activity over the next 12 months, along with insurance. Car insurance, for example, will benefit from the improving underwriting position,' says Peirson.
David Jane, fund manager at M&G's Global Financials fund, echoes Peirson's thoughts on the car insurance industry, but is cautious about the industry's long-term prospects.
'When looking at the financials sector outside of banking, I see three broad themes that affect the long-term view. These are the savings trend caused by an ageing demographic, technological changes and companies use of it, and opportunities for consolidation.
'Overall, I don't like the general insurance industry in the long-term, as although premiums have risen, there are still question marks about whether this will be enough to make the industry profitable.'
Jane believes that companies with a strong customer base and a technology bias will be well placed to take advantage of targeted marketing. General insurance companies, he says, don't tend to own their own customer relationships and could miss out on this.
The insurance industry has also been struggling to come to terms with the increasing costs of providing cover in key areas such as personal injury and disaster insurance.
The biggest winner from the themes he has identified, says Jane, are the retail banks. The divide between banking and assurance, he says, is quickly disappearing and it's increasingly difficult to talk about developments in the financial industries without talking about banks, he says.
'Bank and assurance are becoming one industry. The big retail banks have made acquisitions in the assurance field and increasingly are bank assurers. This gives them a broad range of products and an even bigger customer base, and they are starting to utilise the potential this offers,' Jane says.
Demand for consumer lending strong.
Property market buoyant.
Asset management industry consolidation.
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